morning and help you prepare for the day ahead. today, citigroup will be reporting second-quarter results before the bell. analysts are looking for earnings of 89 cents a share on revenue of $18.8 billion. citigroup ceo vikram pandit telling the uk's "sunday telegraph" that citi aims to hike its dividend for the first time since the 2008 crisis. pandit expects to start talking about returning some cash to investors by the end of this year. citi does not ask the fed for permission to raise the dividend last month when it submitted its latest capital plan, but again, it is looking to do that some time before the end of the year. also, in economic news, fed chairman ben bernanke is the star of the show this week. he's going to be presenting his semi-annual monetary policy report to congress today -- i'm sorry, tomorrow and wednesday. markets obviously are going to be listening closely for any hints of future easing by the central bank. and a new survey today finds that forecasters are increasingly pessimistic about the short-term growth. economists say that the sales of profit gains earlier this year

are disappearing and fewer companies are hiring. among other reasons cited for the gloomy outlook, they've got europe's financial crisis, the possible expiration of the bush tax cuts and the prospect of major cuts in federal spending. on that bright note, let's get over to andrew and the top corporate stories of the morning. andrew, hello. >> hello, becky, and welcome back to you. let's talk about a deal in the news this morning. glaxosmithkline is expected to announce a deal to buy human genome sciences as soon as today. seen raising its offer now to around $14 per share, up from a previous $13-per-share bid. human genome rejected glaxo's $2.6 billion offer in april as too low and launched an auction process. let's talk about nokia. it is now cutting the u.s. price of its flagship smartphone in half. that's the lumina. if you have it. the discount comes barely three months after the phone's launch in an effort to stop losses in market share to rivals such as apple and samsung. and ford is recalling about

8,200 recently launched 2013 escape suvs. the automaker says that a carpeting flaw may cause drivers to apply the brakes improperly. that's a little scary. increasing stopping distances and the risk of crashes. finally, microsoft and nbc, they're dissolving their msnbc.com joint venture. nbc's buying microsoft's 50% interest in the website. it will be rebranded as nbcnews.com. the breakup was announced late last night and the relationship began to unwind in 2005 when microsoft sold its stake in the msnbc cable channel back to nbc. cnbc, of course, a unit of nbc universal, which is a unit of comcast. joe? >> i thought that already happened. i guess it's the website. >> i guess it's going to be completely rebranded. >> hello, becky quick. >> hello, my dear. how are you? >> so, i saw you with -- i recognized the mountain range behind you with simpson and bowles and buffett. so you were in sun valley. other than that, is there anything else you can say? >> yes. before that, we went to utah.

>> that's it, basically, right? because it's -- >> that's right. >> it's not something you would -- i thought it was las vegas, but -- >> what happens in sun valley stays in sun valley. >> and i've heard some really disturbing things that you brought up in there. is that really off the record? >> i can comment on it, if you would like. >> mark zuckerberg karaoke? >> mark zuckerberg karaoke night. sheryl sandberg was on the tables. >> what is it with nerds and karaoke? >> and karaoke? i don't know. >> would you do karaoke? >> i told you, there's four things. i won't dance, i don't shop, i won't -- >> you sing. >> i won't aerobics, and i will not karaoke. >> but you do sing -- >> i have a beautiful voice and i sing. there's something about the whole -- >> we saw you at the christmas party. don't lie. >> right. so, you were there. >> i was. >> i'm glad you're back. >> i'm glad to be back. it's been three weeks since i've seen you. >> i know. enjoy it. >> for a week. >> for five days. and then i'm only going on friday if the euro is under

1.20. [ laughter ] >> the entire trip is based on this? >> we're going to see where it is. it's getting closer and closer. >> i know. >> you've got a shot. >> it's really good. a number of headlines unfolding on the libor scandal this morning over the weekend. everybody knew. like, is that it, the new york fed knew, there's a wink and a nod almost everywhere, wasn't there? new york and connecticut are probing possible manipulation of the benchmark lending rate by global banks. a spokesperson says the attorneys general of those two states started the investigation as much as six months ago. meanwhile, "the new york times" reports that the department of justice is building criminal cases against several financial institutions and their employees related to the manipulation of the rates. i saw that in the paper yesterday. it says authorities expect to file charges against at least one bank later this year. barclays reportedly plans to pull out of the rate-setting panel for interbank lending in the uae because of its involvement in the libor

scandal. barclays belongs to a panel of 12 banks that quote indicative interbank lending rates in uae currency and the quotes are averaged to arrive at a daily range of -- and this is called ibor, i guess -- sounds like igor. not egor. >> does that make it better? >> no, i think it makes it much worse if they knew, but i don't know that they knew. i think they suspected. >> does it make it better from a criminal standpoint? if you had to defend yourself and you said, ah -- >> have we followed the money yet? >> that's what i don't get. >> where was the money-making? where was the bad -- the reason, the degree -- >> oh, two reasons. so, pre-2007, the banks were doing this traditionally -- >> to raise them? >> barclays, as far as we know, to raise them, typically to pay off a trader's trade. so a trader had made a bet on the direction of libor, and they would say to their friends, hey, if you can move it up, that would help my trade. >> okay. >> so, that's what was happening

pre-2007. 2008, different reason, much more systemic. they were trying to keep libor rates low to show their bank as being stable. you're able to say to everybody, look, banks are lending me money for nothing. that means they think i'm very, very stable. so it's a very sort of, there's a disconnect and a distinction between what they were doing. pre-2008 was probably actually bad for the public in many respects. >> right. >> 2008, oddly, probably good for homeowners, bad for pension funds, anybody who actually cared about that rate being higher. >> the idea that you could manipulate the rate. >> incredible. >> crazy. >> i think, i don't know. viewers at this point, my odds -- >> i apologize. >> no, but for a week now -- i'm trying to get excited about it, trying to get excited. >> but everything is perfect. if you're looking at this from the outside, you think -- >> what's the latest i saw? is it in the "times," lead story in the "times," that big

investors get their research from analysts using surveys. >> the panel. >> the hedge funds get them even -- but then i was thinking, you know, researchers are so lousy for most firms. is it really good to get it before everyone else? >> if there is a situation where it might move the market. >> i know, i know, but this is where we need this. >> keeps telling the little investor that the whole game's rigged against you. >> which is part of i think the problem. market has done nothing in such a long time, no one's really -- the whole buy-and-hold scenario is dead. i was just looking at citigroup because we're going to talk about citigroup today. do you remember their 10-for-1? i knew that. do you remember where it was? 5 bucks. you know where it is now? it always happens. >> $26 or something. not so bad. >> not so bad, goes from $50 to $26? >> 10 for 1? >> whenever you do a 10 for 1 reverse split, that's what you see, right there. >> look at that five-year down -- >> you can't even tell from that.

you can tell from there. well, no, you can't tell from that either. we'd have to look at a one-year chart when it was at $50. and it was at $50 about it was at $5. you're having trouble with this. >> i'm going back -- no, no, my brain was on the other article. i was thinking to myself this morning, i'm just curious what everybody thinks. do we actually -- if investors are not supposed to be able to -- i agree that they shouldn't be getting information early, but the question is then, what kind of research can you do? what kind of -- what can you be doing, except just waiting for the press releases from everybody? this is not an argument for insider trading, but this is an argument -- >> channel kmechecks, you can g out dprks. >> well, this is an argument that there are certain people who worked for it that will have more information than other people, invariably. >> sure, but it shouldn't be, here, give me a 30-minute head start. i mean, go ahead with the information. >> that's not what -- see, what they were doing, they were surveying all analysts quarterly, so it wasn't about necessarily 30 minutes or a day or two days.

it was saying what's your view? do you think there could be an upside surprise? do you think this sort of broad stuff. and the argument being made in the piece is that that information is speculative in terms of what the analysts may put out in their research over the next quarter, basically. so, does that constitute -- this is sort of the larger issue. there's information people are going to get that may not be 30 seconds, a day. it's not necessarily about a merger happening tomorrow. >> no, it's -- >> how does that -- how do we think about that? and are we supposed -- i think, i worry that ultimately we're going to get to a point where, basically, we're supposed to wait for the press release, and that that is going to be what people think of as the ultimate sort of, if you want a level playing field, that's what you get. >> i don't think that's the situation. >> no? okay. >> why am i on? did your browser get updated? >> joe's on his computer. >> my computer was messed up. i thought it was because i was gone for two weeks. >> you know what i have now? bing. they're directing me to bing. >> that's okay. i kind of like bing now.

>> what, really? i can't use it. >> yeah. i've started using that. when's the last time you tried, because they changed it? >> i'm not going to try. >> you're searching bing for google. >> i search bing for google and then google comes up. i'm not going to do this, though. i need to change this. go ahead. let's check on the markets this morning. we are looking at futures under a little bit of pressure. there were big gains on friday, but i think that was followed by about five days of losses before that. you can see the futures are down by about 29 or 30 points this morning. not major moves, but we do have a lot of things that are going to be coming. ben bernanke -- fix your problem? >> yes. it says would you like to make google your home page? no, but it won't let me -- >> all's right in the world again. >> okay, sorry. >> alright. we are looking at lower futures today. we'll be listening to whatever what ben bernanke says this week on both tuesday and wednesday. oil prices are down by about 41 cents this morning, $86.69, well below that $90 range. it's always fun to come back and see exactly where things stand. the ten-year note at this point

is yielding 1.479%. >> mm-hmm. >> wow. how long has it been that weak? >> for a while. >> well below 1.5%. also, the dollar has been strong, good for joe, leaving later this week. 1.2185 is where the euro stands. dollar/yen at 79 and the dollar is a little stronger against the swiss franc today as well. we've been watching gold prices. you'll see that right now they are down by about $8.40. gold hasn't budged in forever. $1,583.60 an ounce. okay, let's go across the pond. it is time for the global markets report where kelly evans is standing by in london. ms. evans. >> hi, andrew. is that my cue? what? >> give mr. kernen some advice on the vacation plan. what's going to happen? >> well, look, i could just tell you that the euro continues to weaken, and i will make you wait until the very end of this report to find out exactly where

we're trading. let's look at what's happening with the europe stoxx 600, though. first of all, evenly split between decliners and advancers, leaving us about up 0.04%. the major weakness, though, or the major indices, that is, are showing more weakness, and you can see starting here in spain, ibex 35 is down about 0.75%. we've kind of watched this sink all morning. focus here given the report out of the "wall street journal" that the ecb is considering imposing more losses on bondholders. we'll come back to that. the cac out of paris down, xetra dax down, pairing some losses. and the ftse 100 is down by about the same amount. i mentioned banks. let's focus in on how some of the banks are doing. we'll start with spain, where banco santander across the top, more of them. you can see we're down 1%, in some cases 2.5%. if you're banesto. we're learning that potentially the ecb, which doesn't have direct authority, but can

certainly nudge things the way they would like to see them happen. mario draghi on the july 9th discussion indicated he thought there should be more burden-sharing so it wasn't just spanish taxpayers that would have to take losses or support the banks, it would be bondholders as well. unfortunately, in the case of spain, as we know, in some cases that's a double whammy because it was depositors who became bondholders, who themselves are also taxpayers. so a lot of trouble potentially to keep investors sidelined from those names for now. focusing in a little more on bank names across the rest or outside of spain, at least. let's start over here with barclays in the u.s., down 2.9% today. remarkably, it's been down about 20% since it first revealed it would be paying about $500 million in fines. we'll hear from jerry del messier later today. citigroup about flat before it reports earnings. jpm is up 6%. b of a 4.5%. these quotes, though, reflecting of course what happened on friday. quick look at the euro/dollar, or i think of bond walls. we can show you that and then the euro and toss it back to you

guys. spain spanish ten-year 6.719%. that's creeping a little bit higher today, and we've seen that all morning. why are we showing the two-year dutch price here? the yield is now negative 0.0016%. it went off the short-term auction for three and six-month paper are now negative. there are three eurozone countries, netherlands, denmark and germany where the two-year is negative. the ten-year german is 0.2%. it's even lower and the german two-year negative as well. as for joe's vacation plan, check in here, let's find the euro/dollar. we're at 1.2188, joe, down 0.5% today alone, and a lot of weakness against a lot of the major currencies. so euro reweakening here. the rest of the market holding up relatively well, all things considered. back to you guys. >> keep it going. we're going right past you, kelly. we're just -- we may wave, but

we're going straight to where the euros are used, no pounds, no francs, nothing like that. >> smart. >> we're going straight into, yeah. so, we'll wave, though, as we're going by. >> i appreciate that. all right, there are months of campaigning left until the presidential election, but the ads are already going negative. it's an understatement. you know, john harwood's going to join us with the latest. we'll talk to him about that. but with success that you've seen, like with something like a willie horton or a swift voting, i wonder if in the primaries, all the republican candidates went after romney on bain -- or on private equity. >> on private equity. >> on private equity. so, that had already been done and he sort of weathered the storm. so, these guys had to look deeply into the whole bain, and they have dissected every aspect of it. you know, let's try the out-sourcing, let's try winning left, let's try this, let's try that. and you know, at this point, it

is the big war, you know. you see your friend, not my friend -- >> who's that? >> your friend, krugman, today it's about that this is the election of a lifetime for the people that have things and the people that don't have things. >> i did see that, but did you see "the new york times" story today on the bain? >> no, i saw bill peller. he used to run your paper, didn't he? but he's the most partisan -- >> what's the amazing thing is that the story basically says that this whole debate about whether, when romney left bain, is complete farce. >> well, i know. >> no, no, but i'm saying there is -- >> did you see how many factual inaccuracies there is about the o out-sourcing stuff? >> but you asked the question. there is a piece today that, it's astonishing only in that it says that plainly -- >> they that -- >> no, appreciate that. >> but don't you think it's in the -- the democrats have seen swift boating and willie horton and lee atwater and carl rove, and they said you know what, we're going to do this. because you know what? we're not talking about

simpson/bowles, we're not talking about -- >> not talking about anything. >> -- the fiscal cliff, we're not talking about 8% unemployment. we're talking about what romney did in 2002 and how that somehow is going -- >> allowing the conversation to get shifted to that point. that's the thing. zach johnson winning the john deere classic yesterday claimed the title with a birdie on the second hole of a sudden-death playoff, knocking off someone named troy matson. ♪

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welcome back this morning. the controversy over mitt romney's time at bain capital dominating the sunday morning talk shows. >> as has been proven inaccurate by "the washington post" and independent fact-checkers, this notion that while he was at bain capital, governor romney, you know, shut down american jobs and moved them overseas, it's patently false, it's a lie, and it's sad to see the obama campaign reduced to this kind of, you know, these kinds of reckless, baseless charges. >> but here is the bottom line -- mitt romney can clear the air this afternoon on this whole issue by making a more complete disclosure of economic information. right now, he has failed to disclose information which every candidate of both political parties running for president has made over the last 36 years. >> if you look at the fact-checkers, i look at "the washington post," they say obama is blowing smoke.

they give him three pinocchios. in other words, he is fibbing, he's misrepresenting the facts about bain capital. >> john harwood joins us now from washington to talk it over. john, i watched some of the talk shows over the weekend. i've read all of this material back and forth about when romney left, what documents he signed when. where are you on this? >> well, the relevant point is the one that joe made before the break, which is that as long as the campaign debate is on this set of issues, when he left bain, what bain did when he was there, what they did when he was listed as the chairman but not there, you're not talking about the things that are more problematic for president obama, and this is exactly what democrats have been saying all along where they were going to go in this campaign in terms of trying to define mitt romney in ways unflattering to the american public, and they're not going to stop doing it, because by the president in some interview --

>> but on the details, we saw in the clip, three pinocchios. most of the people who have looked through this would suggest he had no responsibility post-1999, despite some of these signatures. >> all the information that i have is consistent with what you just said. i will confess, i've spent the last weekend with a church youth group on the appalachian trail, completely off the grid. i came back on saturday night, had a bunch of e-mails from people -- do you know that you're in one of those karl rove crossroads gps ads? it was when we did the jobs numbers the friday before i left. i had no clue. so, i'm getting back into this. but no, it appears that he was running the olympics during that time -- >> if the information is so wrong, then how is the democratic party and the obama administration been able to move this story as far as they have? >> gee, i don't know, if they had some ins with the media, maybe that would help, if they had maybe the media might cooperate with them on their effort, but that would never

happen with the objective media, would it, john? >> andrew, it's not -- it's not the kind of thing where the democrats are going to be deterred by the fact that he was -- if he was listed as the chairman, which he was on all these s.e.c. documents, 140 different documents the company filed, that gives -- the way politics works and by the same rules both sides go after one another -- >> but in the most disingenuous, cynical version of politics -- >> are you going to let me finish, say what i'm going to say? >> no, maybe not. >> okay, go ahead. >> no, this is not andrew. but there's some complicity here, john. i mean, are you surprised? and look how much we've talked about -- i can remember talking about kerry, about his individual purple hearts, and you know, but i think mccain -- someone, or was it bob dole, who said if you didn't bleed, you didn't -- i mean, we went back and microanalyzed his vietnam experience -- >> right.

>> so, this is, unfortunately, i guess this is the dirty -- >> it's how politics works. >> i know. and willie horton and the names of the past are -- >> no question about it, and none of this stuff was invented by either party. they've been going at it from time to time. while i was on this vacation, i was reading robert carow's biography of lyndon johnson and seeing when he was running against john f. kennedy for president, he put out the word that kennedy was basically about to fall over and collapse any moment because of, you know, illness and disease he had. the use of innuendo, tissue paper thin bases for allegations is something that is sim pleey the stock and trade of politics. as long as mitt romney's listed on those documents, democrats are going to take everything that happened at bain during that time and say, well, look at that piece of paper. he was in charge. >> and look at all the people,

john, all the people that have some background with bain. there is another one in today. and you look at what the president said about bain years ago and private equity. i never knew bain -- if it wasn't for romney, bain's reputation would be intact. there wouldn't be -- and that's kind of unfortunate, too, because now both private equity and bain capital are totally tarnished from here on out, whether it's legitimate or not. >> i don't know how tarnished private equity is once you get out of the campaign. i mean, wall street and big business in general -- >> ask the man on the street. you see the negative rating or favorable, nonfavorable on private equity now is like two or three to one negative, right? and these are people that are basically trying to have companies become stronger and eventually employ more people and be successful and strengthen the private economy. >> i think at any point, even before this campaign, during or after it, you've got a segmentation of opinion, right?

so, you've got a whole lot of people in the country who have a reflexive, intuitive disdain for financial maneuvering, for wall street, for big business -- >> for capitalism at this point. >> hold on a second. the same way they do about congress, the presidency, people running for office. so, you could say that about democracy. but you also have elite opinion. you've got people who are more informed on those issues who don't have the same view, which is why -- >> job, you've got to read welch, jack and susie's piece in the "journal" with an elizabeth warren quote. she was laughing about whether corporations are people or not. and it's really -- i mean, jack and susie make some great points, but you know corporations aren't just stucco and walls and desks and computers. you know they're people. >> of course. >> people will smirk at you. i don't know. stick around. >> we'll be right back with what traders are watching this week. [ man ] ever year, sophia and i

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♪ ♪ you know it? >> i do. >> what is it? >> good morning, and welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick and andrew ross sorkin. today's top story, earnings season. citigroup's going to report second-quarter results before the bell. analysts are looking for earnings of 89 cents a share on revenue of $18.8 billion. citigroup ceo vikram pandit tells the uk's "sunday telegraph" that citi aims to -- there is no dividend right now,

is there? >> a penny. >> it is a penny. okay, then they are hiking it, for the first time since the 2008 financial crisis, pandit expects to start discussing returning some cash to investors by the end of the year. citi didn't ask the fed for permission to raise the dividend last month when it submitted its latest capital plan. more with well-known financial analyst dick bove in just a minute, but the results from jpmorgan, even with all the noise, all the noise and all the other stuff -- >> pretty impressive. >> 200 points on part of that move in the dow was -- >> jpmorgan was. all right, let's check out the markets this morning. we are looking at slightly lower, at least if you're watching the futures this morning, but not by a whole lot. dow futures are down about 25 or 30 points last time i looked. yra harris is joining us right now from the cme. and yra, we have a lot on our plate this week. obviously, the euro crisis is constantly there. we're watching that closely.

but this week we'll hear from ben bernanke. what is it that traders would like to hear from him on tuesday and wednesday, just in terms of what the bank could do if the slowdown continues? >> well, i think, becky, there's two schools of thought on that. there are those who are hoping that he's kind of nebulous of what he has to say, and that means they'll look for the fed to hold back from any type of stimulus at this point because we just saw, of course, the extension of twist, which has had a less negligible effect. interestingly, we go back to the fo1c minutes and there is a line that the fed has other tools and there were several fed voters and governors, fomc members who were really concerned about the lack of stimulus that has really been produced from these programs and they need to go to other tools. so, i think bernanke will be pressed for the other tools, but i think that the market is going, okay, you don't have to

reveal to us. maybe you don't even want to go at this point because we've already seen. let the market and let the economy show us a little bit more and don't show us anything at this time, but let us know that, you know, you do have other tools. so, but less will be more, i think, out of bernanke. >> for today, is today the day all about citi and what we hear from the financials? i mean, after following up with the market activity on friday, are we back to focusing at least for now on the story of the day when it comes to earnings? >> no, you know, i'm not an earnings-based person. i know a lot of people put it to it, but the market's already digested this. citi's going to have a hard time, though, to out-perform what jpmorgan did. but now, of course, we have the libor issue that will hang over this market and the question of how much is this going to cost them and how many more set-asides will there be to meet the legal costs of battles ahead of it. >> not just the legal costs. just in terms of trying to win back the public trust, yra.

that's got to be a big one, too. >> public trust will be a long way down the line. it's interesting, and we've learned these lessons. barclays, the first one out of the door here and to be punished on this, so they're out of the way. now there is a lot of people with targets on their back and everybody will forget bar claydz, but there's going to be huge, because the amalgamation of lawsuits -- you know, we already hear traders who have been affected in futures pits by this. everybody's lining up here. so the legal question, you know, the program for lawyers in america, that will be the thing that will overhang financials going forward. >> all right. yra, thank you very much. >> you're welcome, becky. back to citigroup. dick bove is senior vice president of equity research at rockdale securities. dick, before we get to citigroup, were you impressed with jpmorgan as well? >> well, i think what i was looking for from jpmorgan was to somehow curtail, you know, the losses from this big trade, which they did. but i thought that the underlying numbers weren't that great. i think that jpmorgan is going

to have a tough time maintaining its earnings over the next few quarters because its credit income is going to go down. it's having trouble maintaining its non-interest income and its expenses are too high. so, the net effect is, i think they're about a buck a share a quarter for the next couple of quarters, and that's not terrif terrific. >> how come so many people were excited about the results and the stock was up $3? that wasn't all just from relief about the wales, because the wales -- i mean, you had additional losses and you had the not acting in good faith. nothing that came out about that was better than expected. >> no, i agree with you, but the fact is, what were people looking for? they were looking for some indication that there wouldn't be any continued losses coming from the situation. >> i mean, it could still go up -- it could still get bigger, right? seven or eight? >> it could get bigger, but it also could turn into a profit. so, the fact is that it's just not an issue anymore. the division is gone, the people have been fired. it's been moved over to the

capital markets part of the bank. and as i indicate, you know, you might lose more, but there's a good chance that you may actually see a profit coming out of the residuals from this trade. so, it's just not an issue anymore. the core issue should be how much money can this company make from its operations? and i think in the second half of this year, it's not going to make that much money. >> all right. so, let's get to citigroup. when it was going to do a 1 for 10, did you know it was - was always goes down in half when you do a 1 for 10. >> you're exactly right. i wrote at the time a number of pieces saying this was the dumbest thing vikram pandit has ever done because i like vikram pandit and i think he does a really good job in running the company, but it's stupid to do a 10-for-1 reverse split unless you have clarity on significant increases in earnings. if earnings are not going to go up and you reverse split, the stock is simply going to go back to where it was before the split occurred. and i don't think it's going to go to 2 bucks a share, but --

>> people immediately who weren't shorting it at 5, or immediately, it gives you such a great opportunity just to weigh in negatively on it. what are the key metrics that we're looking for with citigroup today? >> well, citi kind of scares me a little bit because, you know, the dollar has been so strong, and so much of the revenues of this company come from overseas that there's going to be a foreign exchange adjustment which is going to be very negative. that's number one. the other thing that kind of bothers me is that latin america is in trouble because commodity prices have been very weak. and citi is the second largest retail bank in mexico, even though it's pulled out of a lot of its activities in argentina and brazil. but the point is, i think latin america could be a problem for them, and of course, the third big issue is what are they doing in trading? and it doesn't look, based upon jpmorgan's numbers and all of the other hyperbole that we've heard about goldman sachs and morgan stanley, it doesn't look like trading is going to do very well, so i'm a little bit worried as to what citi might show, and i'm hopeful that

people will realize that it's a unique bank and it's not the regional banks in the united states where i think you'll see some pretty good earnings over the next week. >> but you think pandit is doing a good job and he's a good manager? >> yeah, i think he's done a fabulous job. >> really? >> the guy's extremely good. well, you know, there are only 17 companies in the united states that make more than $10 billion a year, and citigroup is actually one of them. it actually is number 15 on the list. so, the net effect is, people talk about how horrible citigroup is, how all these things are going wrong at citigroup. but what's wrong with banking? and yet, this company is third highest on the list of money-makers of banks in the world, and it's 15th highest on the list of companies in the united states that make money, and it's because vikram pandit has changed personnel, he redirected operations, he's put more money into technology, he's redirected to a decentralized operation instead of centralized. he's done dozens of things, all

of which, other than the reverse split, all of which i think are correct. >> hey, dick, very quickly, he says he plans to try and hike the dividend. it's a penny right now. he'd like to see this change before the end of the year. how important is that and what kind of dividend would you like to see paid out? >> yeah, he's not going to get to do it. basically, he did not -- as you noted earlier this morning, he has not requested a dividend increase from the federal reserve in his latest, you know, submission, so the submission that he puts in for, you know, the stress test that will occur in 2013 may request a dividend increase, but i can't see how citigroup is going to pay any dividend this year and maybe into the first half of next year. >> all right, dick, thanks. >> thank you. >> appreciate it see you again soon. >> okay, if you've got comments or questions about anything you see here on "squawk," shoot an e-mail to squawk@cnbc.com. coming up, the libor scandal. who's involved and what could it mean? first, this is the day for

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welcome back. u.s. equity futures down 24 points after a big gain on friday after really a lousy weekend, lousy three or four sessions before that. making headlines -- a bankruptcy court hearing is scheduled in delaware today for a california solar energy company, solyndra. the company laid off 1,100 workers and filed for chapter 11 protection last year, despite receiving more than $500 million in federal loan guarantees. last week there was a great story about -- did you see they had to reclassify the green jobs? did you see that story? >> i missed it. what was it? >> i don't know, the obama administration releases some figure about how many green jobs there are. so, actually, people looked at it and who they were including theyt were across the board including things that had nothing to do with green jobs. so they had to reclassify all of it and it went down 80% or something, the number of actual green jobs. i mean, very few have been

created, but $2 natural gas, how do you expect anything to work when it costs so much more for some of the stuff? should we talk jpmorgan? >> um -- >> do you want to do that? >> sure. if we have to. go ahead. >> apparently, we do. we are dealing with many legal issues on wall street these days from jpmorgan's trading losses and who knew what and when to reports of the doj looking into the libor manipulation scandal. jacob frankel is a former federal prosecutor and former s.e.c. attorney. he's now a partner with shulman rogers. jacob, thank you for joining us this morning. we spoke to you on friday when the news was just hitting on jpmorgan. now that you've had a weekend to think about it, is this worse than you thought, is this better than you thought? who's the winner and who's the loser? >> well, the loser is always the company and more importantly, the individuals. i think what jpmorgan has been doing and i think what really is most striking is they really were conducting an internal investigation, because now we're reading about they're having lawyers and internal auditors

reading thousands, or maybe it was even millions of e-mails. and ultimately, concluding that, you know, that there was considerable discomfort, but maybe not malfeasance. i think those at greatest risk remain the individuals. but you look at this whole thing, the thing that really jumps out at me is sox-304, which is the clawback provision, buzz the s.e.c. has been very aggressive in their use of 304 against ceos and cfos in terms of making them give back bonuses, give back stock when, you know, when they have found misconduct on the part of others, not the ceos and the cfos. and i think morgan has been very aggressive in their effort to do that clawback internally. >> right. >> from those who are the participants. so, i think morgan's doing a good job dealing with the situation. i think where the real risk from a regulatory enforcement perspective are the individuals

who now clearly are in the crosshairs. >> all right, so, they're in the crossr hai crosshairs, but let's talk about the management still at the company. is there any risk from them either at the s.e.c. looking at them from a risk and controls perspective? is there anything to be said about jamie dimon? is this actually -- there's been sort of a debate about this. it's actually better for jamie dimon in the context that if there was fraud, somebody was trying to cover it up. jim cramer had his bottle of whiteout on the show friday, saying look, if there's whiteout, it's very hard to see. the flip side being, suggesting, well, there's criminal behavior inside the bank. >> i really don't think from everything that we've read so far that it rises to the level of criminal behavior. >> okay. >> and i think when you're talking about what is known to the ceo, i think what we've seen from everything that is public in terms of jamie dimon, is he has been trying to get to the bottom of it, and that's what you want to see. you don't want to see endorsement of cover-up. you want to see an aggressive effort to get to the bottom of what actually occurred. i think ultimately, jamie

dimon's senior bank management really will be unscathed in this, even though they've taken a reputational hit. i think where the real risk is going to be with the individuals, and i think as we were coming into this, you were mentioning the libor cases and barcla barclays. one of the things that was striking there, when you looked at the cftc order against barclays, they really drew out the fact that the conduct of the individuals could actually bring that type of case into the criminal zone where we really have not seen that many criminal cases involving senior banking officials the last couple of years. >> and let's talk libor for one second. is your sense -- i mean there was an article on the front page of the "the new york times" yesterday suggesting that there was going to be additional criminal inquiries, if not arrests. they mentioned barclays, but they also talk about other banks. the only other u.s. banks involved in setting libor are jpmorgan, city, et cetera. so, do you expect we're going to be hearing more on this front? >> i really do, and i think

unlike many orders or settlements we've seen out of regulators, the one that the cftc issued on barclays really was telling and it really brought to light the probability, not just possibility, that we could see criminal charges -- >> does it matter if regulators knew? does that change the equation? >> that's a great question. it probably depends on what they knew and what their involvement was in the discourse, because certainly, knowledge and intent is central to being able to bring a criminal case. if i could just add one other quick thought there, though, also is that often we're looking at violations from the standpoint of are these violations of the securities laws or the regulations that actually govern? what i think is interesting in the libor case is the fact that they're talking about collusive conduct. so, i think we could potentially see allegations that may move

out of securities and into other areas, and that's where i think there is the greater potential for criminal charges, potentially, not just within the regulatory structure. structure. >> okay, jacob frankel, thank you for joining us this morning. >> you're welcome. >> you bet. when we come back we'll reunite in the chairs, we have the stories that have us squawking after this. come up at the top of the hour, why hedge funds are embracing transparency for the first time. stay tuned. "squawk" will be right back. between listening to the numbers... ...and listening to your instinct. duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services. c'mon, michael! get in the game! [ male announcer ] don't have the hops for hoops with your buddies? lost your appetite for romance? and your mood is on its way down. you might not just be getting older.

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welcome back, welcome back, everybody. we are here and we are in the chairs, when we get to look at some of the stories catching our attention this morning. one i wanted to point out, a story in "the "l.a. times."" the recession a lot of people called a mancession, but since 2009 men have been recovering much more quickly than women. going back to june of 2009, 80% of the jobs have gone to men and just 61% in the last year alone, part of what's been happening is that manufacturing, where men tend to have more jobs, has been rebounding more quickly and some of the areas that have always

been women sort of women's jobs as they've been thought of in government included, women are stronger in government, those jobs are still kind of getting punished, drawing down government payrolls as a result and men have been finding jobs in areas that have traditionally been considered women's work, things like retail, where women used to hold the majority of the jobs, still do hold the majority of them. over the last three years, men have landed about 440,000 jobs while women lost 409,000 positions. bad news a lot of the jobs don't come with many benefits, they have lower pay to begin with. men are doing okay and women are starting to feel the brunt, the reversal of what they saw early on in the recession. >> you can look at all different groups, ethnic groups. nobody is really doing well. >> and men suffered much more heavily in the beginning of the recession.

>> the right direction/wrong direction numbers, the consumer confidence numbers, the general feeling that we have right now as an incumbent i would be worried. i don't know what's going to finally happen but i'm telling you, things do not feel good at all. >> they do not feel good. >> 8.3% unemployment. >> right. i want to quickly talk about, and i tried to find that, i either is you it on drudge or huffington. peter jackson that screened "the hobbit" at comic-con and didn't have the right technology to show the 48 frames per second to show the new technology used. people that see it say we're used to seeing movies where there's a little blurb, this looks like reality but it's unsettling and different and takes a while to get used to it. >> i can't wait to see it! when does it come out? >> coming out soon. >> i'm excited for "batman" this week. >> oh, yeah. >> coming up, we'll be back.

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taking no prisoners to avoid the fiscal cliff. >> ahh! >> special guest david walker, texas ranger, is ready to take on the deficit and rein in government spending. finding solutions on america's drowning debt. >> it's literally crazy. >> it's madness. it's numbers. it's math. >> former fed vice chair and member of the deficit commission alice rivlin is here. >> and what's on tap for investors before the day begins. >> now. sell for the 142! >> it's the second hour of "squawk box," begins right now.

good morning, everybody. welcome back to "squawk box" here on cnbc. i'm becky quick along with joe kernen and andrew ross sorkin. we are expecting glaxo smithklein to acquire human genome science this is morning. they agreed on a takeover deal. also fewer u.s. companies are planning to hire new workers according to a new survey from the national association for business economics. 23% of firms plan to add employees in the next six months, down from 39% in the previous survey that was just three months ago. lot of worries about europe were cited by nearly half the companies polled. nokia is cutting the price

of its lumia smartphone in half, coming three months after its launch as it tries to stem losses to apple and samsung. the price used to be $99 with a two-year contract. now it is just $49.99 and if you bought it in the last three months you are probably feeling like a sucker this morning. we are watching the futures, right now you see the dow futures down by about 32 points, s&p futures down by just over 3.5 and joe i'll send it over to you. joining us for the next two hours to talk business and politics is david walker, founder, president an ceo of the comeback america initiative, also the former head of u.s. government accountability office and a frequent guest. texas ranger great to see you. >> great to be back. we need to save the republic, it's at risk. >> a big job. the more you keep coming the worse it keeps getting. you don't get frustrated. >> no, no, i think the period, labor day -- >> at least it's front and center. >> progress has been made in that regard.

people are talking about it. i think the period september 1 through the end of next year is going to be the most critical arguably in the history of the country. >> for the republicans. >> from a fiscal standpoint. it's really important we make sure that this presidential election is about substance and solutions. >> like we're seeing with all of the talk on the side right now. >> right now it's about the past, personalities and problems. it needs to be about the future, substance and solutions. it's about the economy, jobs, fiscal responsibility. they're all interconnected. we need to get the economy going in the short term but we need to deal with our structural deficits, with he need to do both in an integrated and coordinated fashion. we've had a lot of things happen since the last time i was here, the health care decision, we've had a number of cities go bankrupt, we've had a number of special elections that have taken place, more things happening in europe, and things yet to be done and yet the economy is still weak. we've got weak growth, weak job recovery and i don't think it's going to get better until three things happen.

one, we got to do something about housing. number two, we got to do something about small business lending and number three, we've got to provide more certainty with regard to our tax laws and regulatory structure. people aren't going to make big bets with the degree of uncertainty that we have right now. >> we had simpson-bowles, becky, i don't know how much you saw last week. >> it was great. >> it was great and that sounds good and afterwards we had on -- >> mr. krugman. >> krugman on wednesday. the day before. >> let's not bring him up a. >> no, i have a krugman question. >> i'm talking about something else. >> i'll cover that. >> friday we had judd gregg in a debate with congresswoman, i can't remember her name. anyway, what is it? ann chukowsky. one side says the spending cuts are completely unacceptable and the other side doesn't really

like the tax side of things. we're nowhere near any type of agreement on that. >> here's what it's going to take. >> do you think the democrats will agree to 23% rates? they have to go back to the clinton -- they got to, even if we only do it for a month we got to get back to 40%. it's in their dna that it has to be done for fairness. >> if we want to solve the problem, two things have to happen. number one, this presidential campaign needs to be about substance and solutions. we need to make sure at least one of the debates is focused on the economy, jobs and fiscal responsibility, with a format that will facilitate a substance of exchange, and with a moderator or moderators who know something about the topic to keep people honest. the american people need to understand the difference between these two candidates as to what they propose to do, not what they've done but what they propose to do for the future so that they can make a choice about who to support so whoever

wins can claim they have a mandate, then the president has to use a bully pulpit to go directly to the people with the truth, the tough choices, the solutions, and then the people, the first three words of the constitution, "we the people" have the pressure their elected officials to act in the public interest rather than their personal and partisan. that's the only way. >> you see from the president right now we're back to the same old 250 and above i'm going to raise taxes. that's all you're getting and you see what it is, it's just posturing. >> here's what frustrates me. your friend, warren buffett, okay, which there's been a lot of debate about -- >> he's an old friend. >> i know him as well but nearly as well as becky. the fact of the matter is we're having the big debate are we going to eliminate the bush cuts for people over $1 million or 250,000? that's not going to affect the wealthiest people in the country, why, because they make their money based upon capital gains and dividends.

you need comprehensive tax reform. >> you're not going to hear it. >> and you need to broaden the tax base. we're going to get comprehensive tax reform, we can talk later about the lame duck session. there's a reason it's called lame duck. >> that's the opportunity? you think that's the opportunity? >> no, i think the lame duck is where we're going to end up, we need to separate the weak and which ones should be extended and which should not be. we got to get a downpayment and tee up for a grand bargain next fiscal year. that's realistic. the idea we're going to do a grand bargain in the lame duck is inappropriate and up realistic. >> would obama 2.0 be different than obama, than the first administration? would he do these things, if he's reelected? >> the president has not been specific about what obama 2.0 would be. i don't know what obama 2.0 would be. >> what do you think the chances

are, mr. non-party -- >> i do believe that the president wants to address this issue. i believe that he and boehner actually wanted to do a deal last year, and you know, it ironically got scuttled because of the gang of six, unintentionally, but it did. i believe mitt romney wants to do a deal, too, but their deals are very different. here's the key. it's not a matter of whether you want to do it. do you have the leadership ability to get it done. >> and we've got you here for the next two hours. >> i'm looking forward to it. >> we'll get through some of the solutions. >> we're going to fix this. >> absolutely. we could do it. it wouldn't take that long, though. >> we have less than two hours, doable? an hour and two minutes. >> we can do it in less than two hours, okay, we just got to get people to implement. >> i actually believe there are some real solutions we could find quickly. we are going to talk about that this morning. we have a lot of other things to get to, price water house coopers, they have a study on trust and transparency in the

henl fund sector. mike greenstein is the global alternative investments investor. mike, when you start talking about trust and hedge funds, there's a lot of room for improvement right now. correct? what's the hedge fund industry dealing with, trying to assess and bring clients back in? >> sure, well fundamentally what david has been talking about is trust and transparency for the broader political environment but pwc just issued paper on trust and transparency for the hedge fund industry. we spoke to leading investors and managers on those issues and what we heard is that managers really need to strike a balance between being entrepreneurial and being institutional quality. they need to be nimble, and opportunistic enough to deliver alpha, something i'm sure we'll hear a lot about on wednesday and also run their business in a

highly professional and institutional way to deliver confidence to investors teen regulators. >> when you start talking about transparen transparency, that is not a word i associate with the hedge fund industry. you think of the guys being secretive, coming up with strategies that's going to make a lot of money but not sharing that with anyone. how do you walk that line as a hedge under? >> there's no doubt hedge fund is critical to trust and confidence and it's moving from a black box way of doing things to a more transparent or open book approach. >> can they still do that and get sizeable returns? >> i think it is about that balance, being nimble and entrepreneurial but also being transparent and running their business in an institutional quality way. >> how do you shed light on things, open your books, become more transparent and not lose your competitive edge, though, because for hedge funds it's always been about a strategy that other people couldn't figure out. if you become more transparent,

how do you not automatically lose some of that? >> i don't think it's mutually exclusive. it is about striking the right balance and investors frankly understand that managers have a legitimate right to a certain degree of proprietary nature about their strategy. they also expect to be able to risk manage their own business, investors do, and so investors and managers are having a more open dialogue about what that balance is. >> can i ask this quick question? i went down to adviseily sam israel, hedge fund manager who had a huge ponzi scheme and we had the author of a book about him on last week and he said this is remarkably rampant all over wall street, there are hedge funds today involved in ponzi schemes that we don't know about. your thoughts? how rampant do you think it is? >> i think that we're in a new era now where investors are doing rigorous due diligence and

the industry is subject to greater regulation and scope. 1%, 5%, 10%, 50%? >> i don't have a prediction on that. >> thought i'd try. >> mike, thank you very much for joining us this morning. we appreciate your time. >> thank you for having me. >> be sure to tune in starting at 6:00 a.m. eastern on wednesday for live coverage of the delivering alpha conference in new york city. we'll be bringing you special guests all morning long. keynote speaker treasury secretary tim geithner will speak at 8:30 eastern time and we'll carry his comments live on "squawk." comments, questions about anything you see on "squawk," shoot us an e-mail, squawk@cnbc.com is the address and follow us on twitte twitter @squawkcnbc is the handle and you have our personal tweets or twitters. ben bernanke on capitol hill this week to talk about the state of the economy. trader also look for clues on whether a third round of stimulus is coming. we'll talk about that when veteran wall streeter scott black joins us after the break. 00 shades of grey

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welcome back to "squawk box." the dow and s&p last week finishing off on a strong note, snapping a six-day losing streak. today it looks like we may at least at the beginning of the recession resume the downward move, looking down about 20, 30 points on the dow this morning. the s&p looking cheap by historical standards but macro economic problems are making

today's market trading anything but traditional. delphi management president scott black joins us now. good morning to you, scott. >> good morning to you. thank you. >> so we're going to hear from ben bernanke later this week and i'm curious what you think we will be hearing. >> i ultimately think you're going to see qe3. if you look at the fed balance sheet it's about 2.9 trillion and with operation twist behind us, it was up less than 1% year over year. i realize that rates are extremely low and he's pushing on a string, but short of any fiscal policy which is doubtful in the congress the best alternative is some sort of quantitative easing again. >> you think we're going to hear that this week? that's your gamble? >> i really think so. i'm not a trader but the point being the economy is so slow, and the fact that china's been slowing and europe's still in crisis, they've got to do something to try to push economic growth in this country. >> right. scott, you know, we teed this up segment by saying that by

historical standards the s&p is cheap. i know you're not a trader but is this cheap or is it a falling knife? >> no, i think it is cheap. i'm using $103 in s&p earnings, it really is about a 13.2 multiple, two to three multiple points below historic norms. corporate balance sheets are xwlent with $1.7 trillion in cash. it's the other factors out there. if somebody has a two or three year horizon they can do well. if you have a two or three-month horizon it will be choppy just as it's been over the last couple of months. >> how much longer -- this is david walker. how much longer can we have the fed buying 60% to 70% of all of our new debt issuances which obviously keeps interest rates down in the short term to help the economy in the housing market, but has real consequences it seems for the time. >> you're absolutely right, we need along the way of the road map of simpson-bowles where obviously we have to come to

grips with the deficit problem, and it's ridiculous this grover norquist nonsense that ultimately we can never raise taxes again. there's no pathway to a balance or 2% gap between tax receipts and outlays unless we raise taxes approximately $1 trillion over time, and we cut the growth in spending, not cut absolute spending by $3 trillion. >> not to turn this into a political segment but david, respond to that, the suggestion that you've made i think is that perhaps you can raise taxes but that the real issue is in cutting. >> well, look, i think if you look at where we are, right now, we're spending about 24% to 25% of the economy, we're taxing at about 16. >> correct. >> i think we can solve our problem over time, believe it or not, at less spending than 24% of gdp but we have to have more than the historical averages of

18.3. we need to recognize that reality. how awe chief that spending and how awe chief the revenue increases matters. we need comprehensive tax reform, not higher rates, we need a broader base of lower rates. >> how does 50 and 48 grab you? 50% gdp spending, 48% revenue? >> that's a plan he averages -- >> how does that grab you? >> it grabs me badly. >> scott, before you go, give us a preview, we're in the middle of earnings season. what do you expect from here on out. how are you thinking about it? >> i think earnings are slowing. you're going to see maybe 5%, 6% increase year over year. operating margins for the s&p actually peaked in the third quarter last year. you're going to get a head wind because of the translation effect on the euro but i think earnings still will be up and of course, it's distorted to some degree by companies like apple, you know, apple is 22% waiting in the s&p tech index, they

continue to do well. it distorts it. >> any other names you like? >> yeah, there are two smaller ones i came with, adulent, the original hewlett-packard bench testing if you back out the cash almost $5, it's a 10 pe, 27% return on equity generates over $1 billion in free cash. biomedical reality, bmr is the ticker, for people who want yield, 4.5% yield with impolicity cap rate of 7% and the nli, net operating income is operating at 12%. it's in the sweet spot, biotech facilities like cambridge, mass. san diego, palo alto, and the maryland area, so it's got sustainability. >> scott we have citigroup coming out later this morning. bouvier is worried about libor, everything that's been hanging around, you have foreign currency rates that concerned him with citigroup.

what do you think about financials and/or citigroup? >> we wouldn't own citigroup. the two financials we own are wells fargo and u.s. bancorp, they have good franchises and reserves to non-performing assets they're formerly reserved. we've in general avoided the financial sector because the banks' balance sheets we find aren't strong enough. >> scott thank you for joining thus morning. >> thank you. when we come back, we'll ask whether gas prices are likely to head back up. we'll talk pump prices after the break. will the fed act before falling off the fiscal cliff? former federal reserve vice chair alice rivlin will join us at 7:30, stick around. it's a conversation you don't want to miss. man, i'm glad aflac pays cash.

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world-changing event occurred on this day in the year 1969? the answer, the liftoff of "apollo 11," the first successful manned mission to the moon. ♪ ground control to major tom >> aflac! >> we're back this morning. gas prices dropped an average of seven cents a gallon over the past three weeks where prices could be headed back up. the lundberg survey of fuel prices putting the national average price of regular at $ $ 3.41 a gallon. jackson, mississippi, the lowest average at $3 a gallon. gas prices are highest in chicago with a gallon going for $3.78. analysts say high seasonal demand in rising costs of crude will likely mean the end of lower prices at the pump and right, that's my own cheeks, thank you, joe. >> it's the if he rarie.

ferrari. >> that was the g forces we were getting there. >> well you know -- >> did you buy one? >> it was nerve-racking being in that car. >> all right, comments. that is a cool one. that is a four-seater that ferrari there. >> i was just nervous, wanted to give it back without anything damaged. >> they were worried when i went ahead of you and switched lanes. >> oh. i was a little worried, too. >> no problem. comments, questions about anything you see on "squawk" -- >> how fast do you think we went? >> up over 100 but we had the police on our side, right? you know what i realized, if anything ever happens like if your dw initiation an accident, seizure. everybody's having seizures. have you noticed that? everybody who is in an accident -- >> no, bees, bees. commerce guy. >> the commerce guy and kerry kennedy, looked like a dwi but it's actually no, history of

seizures. that's what i want to use if i do. i might have one right now. here on "squawk," e-mails quack@cnbc.com and follow us -- it's an epidemic -- @squawkcnbc is our handle. coming up, former fed vice chair alice rivlin, and then the president and in mitt romney and argue. ♪ ♪ ♪ [ male announcer ] what's the point of an epa estimated 42 miles per gallon if the miles aren't interesting? the lexus ct hybrid. this is the pursuit of perfec.

welcome back to "squawk." happy monday in the headlines this morning, we're expecting citigroup to be reporting its quarterly numbers, coming at the top of this hour. analysts think citi will record a second quarter profit of 89 cents per share. the numbers and instant reaction when they hit. we're about an hour away from the government's latest reading on retail sales, consensus forecast calling for a 0.2% rise in retail sales and 0.1% if auto sales are excluded. ice age" took in $46 million in ticket sales. "the amazing spider-man" second with "ted" slipping into third. becky? with that fiscal cliff getting closer every day and the

urgency to fix the problem it has been growing. listen in. >> we had $1.1 trillion worth of spending in the tax code. it's literally crazy. >> who is fooling who in this game? it's madness. it's numbers. it's math. we don't do wizardry. we do math. >> if berkshire were in trouble pan financially, charlie and i and others would sit down and say we got to figure out a plan to get out of this and do it today. >> joining us is alice rivlin, former federal chis chair and senior fellow at the brookings institution. alice, thank you very much for joining us. great to see you today. >> delighted to be here. >> so we are talking about the fiscal cliff and my question is, is there any chance that it's actually a good thing that pushes us towards some sort of solution? >> oh, it's a good thing if it pushes us toward a solution. it would be i think quite disastrous actually to have the

fiscal cliff come into effect, meaning that the spending cuts, the rather non-sensical spending cuts that are in the sequester, and all of the tax cuts would expire at once, that's likely to throw us into recession. nobody wants that to happen. the fact that the fiscal cliff is there is just an evidence that we haven't been facing our big problems. we erect these barriers that are supposed to make us come to grips with the big problem. maybe this one will. i hope so. >> we have, you were able to get 11 members on that supercommittee who voted in favor of this. which people saw as an amazing feat to get people from far ends of the spectrum to come together and agree to cuts like this. what i wonder is, there's talk again of simpson bowles, of other plans that are out there. what do you think it actually takes to get this to go forward, if we can't even get the

supercommittee to kind of push through with their recommendations? >> the supercommittee failed to get agreement, but every bipartisan group that has looked at this has come to roughly the same conclusion. it's not that complicated. it's arithmetic. you have to cut spending going forward, which means reducing the growth of the entitlements. it's all about health care. it's about medicare and medicaid. because we have so many more seniors and the cost of health care is rising. you have to do something about that and even if you do something about that and you cut other spending as necessary, you can't get there without more revenues. so this is the big opportunity to revamp our tax code and raise more revenues over time, not quickly, but over time, with a much more pro-growth and sensible and progressive tax

code. now everybody said that, from simpson-bowles to the one i co-chaired with my friend, pete domenici, the gang of six, you can't get away from this solution. it's the arithmetic. >> alice, dave walker. debris you've got to have everything on the table and only try to address the things you talked about. what is realistic to get accomplished in the lame duck session versus being able to tee things up to do more comprehensive things in 2013? >> i think the lame duck session can establish a framework, the kind of framework i just talked about, entitlement reductions in the future, and/or reductions in the rate of growth, rather, and a revamp tax code. now, you're right, you can't do it all quickly, and what will be a very hectic session, no matter

who wins the presidential election, but what can be done now, and in the lame duck, is for people to come together from both sides of the aisle and say this is what we want to accomplish to avoid the fiscal cliff, and here's a plan for doing it, by a certain date, march 30, june 30, whatever. we are going to have a plan that congressional committees will bring back a plan that raises this much revenue, that slows the rate of growth of entitlements, and we will then vote it up or down. >> the problem also is that we are making these, having these conversations in a time of a slowing economy. you're looking at unemployment at 8.3%. how far down the road do these changes have to be pushed? i mean are we talking about changes that would take effect a year from now, two years from now, three years from now? is it dependent on where the economy stands, by some

measures? >> we certainly want a gradual phase-in. it would be crazy to raise taxes and cut spending right now. that's what the cliff does, and everybody's agreed that's a bad idea. in fact, i think we need more spending to create jobs in the near term, but it has to be coupled with this long range plan, which takes effect gradually over time, starting a couple of years down the road. >> alice, in the plan specifically, not your plan but the bowles-simpson plan, we get rid of all the deductions and we lower the, broaden the base and lower the overall rate. i'm just wondering, trying to do either one of those versus the other side, i can't imagine trying to do one but trying to do both, it seems impossible. what do you think would be easier -- >> no -- >> getting the special interests and the too emthat love mortgage deductions, the people that love any of those write-offs, all the

corporate cronyism, that's going to be hard to get republicans to agree to give that up. who, on the other side, is going to agree to lower the overall rate to the 20s when they want to go to the clinton years. i can't imagine either side agreeing on one of these things, much less both for tax reform. >> actually i think the two sides have been quite close to agreement on those things, and just haven't pushed it over. >> they just not admit it, they don't say it, afraid to say it into a microphone or something? >> yes. we have an election, in case you haven't noticed. >> yes. >> and everybody is scared. republicans are scared to say they want to, that we need more revenue, even with lower tax rates. >> right. >> and democrats are scared to say that we need to reform medicare. >> yeah. >> both sides know we do. so once the election is over, and we're facing this really

drastic problem of the cliff, i believe that they will come together. there are plenty of democrats who say we're willing to do the entitlement reductions if they're willing to do the tax increases, and there are plenty of republicans who say, not into a microphone, we're willing to revamp the tax code to raise more revenue, if they will do the entitlements. so you got a deal there. >> the problem becomes, though, if we don't have a framework that's already laid out, we get into the election, it takes, let's say six months to a year to work out some sort of a framework and then you're right back towards looking at another election season because congress is up for election every two years. how do you break out of that cycle to not worry about the next election? >> we can't wait that long. we've got to do it right after this election, either in the lame duck or very early in the next session, and i think in the lame duck we have to lay the framework. the framework is no mystery.

everybody who has worked on this problem has come up with the same thing, and so everybody knows what the parameters are. it's just a question of saying, let's hold hands and jump together. >> alice, i agree that the framework is well-known. it's a math problem. everything has to be on the table and we have to act. while our fiscal problem is our biggest challenge, let's assume that we make progress on the fiscal issue. let's assume we get a grand bargain in 2013 that's along the lines of simpson-bowles, domenici-rivlin, et cetera. do we need to consider whether or not the fed ought to have a dual mandate? should the fed be concerned with short term unemployment or has that politicized the fed? >> i don't think it's politicized the fed. the mandate is clear, and i think necessary. i so testified recently.

the alternative is to tell the fed, you only concentrate on inflation. you don't worry about the rest of the economy. i think that's ridiculous, and it wouldn't perhaps make much difference anyway. the fed has got to look at the health of the u.s. economy and that's embodied in the dual mandate, maximum employment, and low inflation. they've been doing that for years. they ought to continue doing it. >> at any time inflation was running below 2% or negative they would be doing things that wouldn't be stated they were trying to help unemployment but if you kept it around two it would be self-modulating, right, david? absolutely the duals need to be changed by congress? >> i'm sure there are such people. i'm not one of them. it's a clear case if it ain't broke don't fix it. >> greenspan told us they never

paid attention to the second partd, the unemployment part. they figured if you took care of inflation the rest would follow from that. >> well that hasn't been true recently. i think the importance of keeping employment up and the economy growing is going to be the important thing, not inflation. >> maybe that should be fiscal things. the fed seems like it can never take a day off. it's always something. they can never stand back and let things go by themselves. >> well they're standing back now, i think rightly. they've done everything they could, and i don't expect that there will be a big move soon nor do i think there should be. >> with the dual mandate they should do qe3. take it for what it says, they should be doing qe3, based on 8.2% unemployment. >> if you thought qe3 would do much good and i happen to be one who thinks it wouldn't. >> i agree with that with alice,

95% of the time. i don't agree on the dual mandate. i think the fed needs to be focused on the structural. it needs to be focused on the longer term. the problem overwhelmingly is fiscal policy, as she knows. we need to deal with that but i think we need reforms in both. >> alice, thank you so much for joining us again, alice rivlin. >> you're welcome. >> we can't leave it to the fiscal clowns, though. she's right about that. >> she's right about that but they're the only game in town. >> right. still to come this morning, stocks making headlines includingcy group, said to report earnings at the top of the hour. later the policy director for mitt romney joins us to discuss jobs and the need for fundamental changes in the nation's fiscal policy. i bought the car because of its efficiency. i bought the car because i could eliminate gas from my budget. i don't spend money on gasoline. it's been 4,000 miles since my last trip to the gas station. it's pretty great. i get a bunch of kids waving at me...

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back back on this monday morning with sad breaking news, barton biggs, former morgan stanley employee, has passed away at i

believe how old was barton? he had been sick the past couple of months, author of "hedgehogs" was it, "hedgehogging" his book? very sad news. >> 80 years old, was he? >> i don't think he was. james gorman putting out a memo to the firm at morgan stanley where he worked for many, many years, founded morgan stanley's investment management arm in 1975, served as chair nan until 2003 and of course left in 2003 to found his own investment advisory firm traxis partners, one of the first hedge fund managers in the world back in 1965. >> that's sad news. >> very, very sad news. >> our condolences. >> we send our condolences, and he was a regular cnbc-er. >> it's overused to say "someone doesn't suffer fools" but he really didn't. if he didn't like a question you asked he would tell you immediately and he was legendary

for some of his great calls. >> and technology. >> he admitted when he missed things but he certainly was right more than he was wrong. that's kind of a shock, because he used to sit right here. >> used to sit here. our condolences to his family, survived by his son, two daughters and nine grandchildren. >> he'd been with morgan stanley for many, many years, quickly looking on wikipedia, joined as managing director and general partner back in 1973. really, really sad news. he graduated from yale university in 1955. >> 78. >> 78 to 85. >> okay. let's get more from our guest host, david walker, this morning. >> 78 last year. so probably 79. >> hard to transition from news like that. >> yeah t , it is. >> last week we had paul krugman

on and talked to the idea we could get to 50% of gdp in terms of spending without a huge problem. what do you think the ultimate number is, meaning what do you think in terms of the bond market, in terms of what we need to do, what is the specific number you think we have to get to over let's say the next ten years? >> i think two years -- ten years is too short. i think we're talking about a longer transition. first i think if paul krugman wants to have 50% of gdp -- >> by the way just to put in context, i don't think he wants it to be 50%. he said that's a worst case scenario, when you start getting nervous. >> first of all he should move, there are plenty of places to go. >> he wants to move there. i wish he would. >> my view is that federal spending is 24% to 25% of gdp. i believe that we can achieve a grand bargain that will deal with the demographics, it will provide a solvent, sustainable, secure and social safety net and adequate defense spending for

less than 24% to 25% of gdp. right now, we're taxing at about 16% of gdp, the historical average has been about 18.3. i believe that it's going to have to -- revenues are going to have to be more than 18.3. they're going to have to be a little over 20, but the longer we wait to deal with this, the greater the risk of a debt crisis in the u.s., the more changes we're going to have to make, the less transition time, and time is not working in our favor. >> there was a piece i read, probably a year old at this point that steve ratner wrote about the german experience and our experience, the way they approached job creation and we approached job creation during the downtown. he suggested in germany they said jobs were the most important thing and they were willing to take a hit to their gdp in the process to keep people in their place at work.

i thought it was an interesting dichotomy, how do you think about the two issues, is the ultimate goal job creation or is the ultimate goal growth, which we think therefore turns into job creation and that's an ancillary by-product? >> i think we've got it backwards. i think we need to focus on what does it take to generate economic growth and job opportunities and when you look at that, it's basic research. it's critical infrastructure. it's education. by the way, we have been in business for 223 years as a republic. we have no plan, no strategic plan. we have no outcome based metrics and we have no budget, so we're 0 for 3, that's a strikeout and we wonder why we're having problems? >> in a global economy you can imagine if germany, if it went on and on and on for years, where they were overcapacity in the amount of labor, globally they're not go to be as executive. it seems like a chicken/egg

semantics thing, doesn't it, to argue whether, you know, if you're going to have growth, you're going to -- demand will grow and you need to hire more people. >> there's been arguments about what type of growth and technology allows you to grow without necessarily hiring. >> the other thing, even anti-trust, a lot of times it's based on keeping a company in business rather than and over time it doesn't seem, these are hard things that have to happen, they're painful as they're happening, but -- >> and the key is we have to focus on the fundamentals. let's take an example from recent history, the stimulus. the stimulus was big enough, but it was not properly designed. it was not effectively implemented. it was oversold. it underdelivered and now the water is standing. >> nobody in the unemployment figures we see the first friday of every month, no one likes to see anyone losing jobs, even government jobs but just to keep

people -- borrow more money from china to keep more people on the job made no sense. >> i was traveling a week or two ago at the hotel they have "usa today," big headline in the paper was, "gdp slowing as defense cuts mean lost jobs." it was an interesting headline because it sort of captures the entire issue. cutting defense spending which some people think is the right thing to do or cutting our overall budget is the right thing to do, yet we're losing jobs. the question is how the short term hit or whatever that pain is for what some people think is a long-term gain, but some people are worried there is no long-term gain, right? >> we have to deal with the short term and the structural. let's take the ifisical cliff. cbo estimates if we allow all those things to expire and the cuts to take place, the gdp will go down by 2.3% in 2013 and 2014. on the other hand, they estimate that if we don't get our fiscal

act together, growth is going to go down over time as compared to what it would be. we have to deal with both. >> david walker, we'll continue the conversation in the next hour. coming up, will citi address concerns about libor and proprietapro prytory training? the company will report earnings at the top of the hour. we'll have the numbers as soon as they're out along with instant market reaction. and a look at citi's stock over the past year. "squawk" is returning after this. this is our pool. ♪ our fireworks. ♪ and our slip and slide. you have your idea of summer fun, and we have ours. now during the summer event get an exceptionally engineered mercedes-benz for an exceptional price. but hurry, this offer ends july 31st.

arewe we are getting ready for quarterly results from citigroup. this say big number today, especially after what we heard from jpmorgan on friday. the numbers are expected to hit the wires just in the next few minutes, 8:00 a.m. eastern time. when the numbers hit, we'll bring them to you, break down the report with chris whalen, managing director at tangent capital partners. plus mitt romney's strategy to lin the white house, we'll talk to lanie chen. "squawk box" will be right back. if you're just tuning in, you're two hours two late. >> look for the fed to hold back from any type of stimulus at this point, because we just saw of course the extension of twist, which has had a less than negligible effect. >> i don't think it's going to get better until three things happen -- one, we got to do something about housing, number two, we got to do something about small business lending and number three, we've got to provide more certainty with regard to our tax laws and our regulatory structure. >> what we need is something along the way of the road map of

simpson-bowles, where obviously we've got to come to grips with the deficit problem. >> it would be i think quite disastrous actually to have the fiscal cliff come into effect. that's likely to throw us into recession. nobody wants that to happen. the fact that the fiscal cliff is there is just in evidence that we haven't been facing our big problems. [ female announcer ] e-trade was founded on the simple belief

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citigroup's reporting 95 cents a share, and that is versus expectations of 86 cents. also if you exclude the impact of positive cva dva2 and a net loss on a sale of a 150% state in ack back is $1, chris whalen will talk to us in a second. at first blush, 2.9 billion in profits would be a $10 billion a year company. >> that's about the run rate if they don't make any mistakes about $3 billion they'll make a quarter given the reduced top line. we've taken the top line down $8

billion since 2010 so it's a much smaller company but that sounds like a reasonably good quarter. >> excluding dva, cva, the revenue was 18.4, and to compare apples to apples i think 18.76 was what the thompson reuters was looking to are that number, chris. i think there's another revenue number that would compare to the first call number which was i think 21.which was what they were looking for so that probably includes the cva. overall the market looks positively? >> yeah they usually tend to be light in the fourth quarter, just for the idiosyncratic reasons but they're kind of on track where they're supposed to be. >> what else do you want to know, what can i go i have thaw would really make you -- >> i was looking at the first quartd quarter last night. the beta has fallen, this is a less volatile stock than a year ago and if they can avoid

surprises good and bad i think they'll slowly get investors to come back to the stock but as i always like to remind people, this is still the outlier in the large bank peer groups. you pair citi with hsbc with target loss rate. >> total allowance for loan losses was 27.6 billion, that's 4.3% versus 34.4, or 5.4% in the year before. >> allowances are continuing to fall and that takes a lot of load off of operating income, but the thing you got to remember is with the fed, where they are in terms of zero rates it's going to be hard to expand margins because operating income is falling as the balance sheet reprices. we're not going to see any more compression in net interest margin. i was sitting next to paul miller from fbr, we looked at one another and said no. the balance sheet doesn't finish repricing. unless they're magicians i don't see how they can keep net interest margins stable.

they have to continue to compress. >> earlier we spoke with scott black who said the only two financials he really likes are wells fargo and u.s. bancorp and he said because when you look at reserves to non-performing assets the two banks are in a different category. how would you weigh in? >> i disagree with u.s. bank but disagree with wells. wells has an enormous second lien position. depending on out things pan out with the first liens wells could be headed for a significant write-off. i've always had problems with wells' disclosure, they're far more aggressive than the top four but on the other hand they don't have wall street. they have one-third share in residential mortgages right now. interestingly they just got out of wholesale, in other words they won't buy production from third parties anymore, which i think is part of the evolution of this market, two, three years down the road the mortgage originators are going to look like angelo musilo's firm, countrywide, before he bought a bank, and those are going to be

customers of banks who are going to be providing the funding to them but because of regulation, dodd-frank, basel, everything else, i think you'll see the non-bank sector literally regrow which is kind of an interesting opportunity, if you're a banker, but i could say this, you know, during the jp all again i asked hem about basel and they said it was no impact so again, i was a little bit surprised by that. it would be interesting to see what citi says on the call today. >> pandit made comments to oversea s media. >> he did. >> they're interested in raising to a penny. is that something the fed would sign off later on this year you think? >> they probably have to go through another capital stress test exercise just like jp has to and it's a different model, this came out during the discussion last week so i wouldn't say no. they have written off more in a lot of ways than bank america and wells.

even though wells is the darling, i understand that, an emotional thing, warren buffett, your friend, parked there. at the same time, citi, my god, look at how much smaller the company is. they've torn through a lot of assets, a lot of operations they've shed, going to get rid of smith barney eventually, although i'm not sure that's good for morgan stanley. what i wrote about on zero hedge will they change the model and reduce the target loss rate inside the bank so their charge-offs look more like jpmorgan and the other big banks. i don't know, i don't think they'll make as much money. >> libor scandal, front page of the new york times yesterday said not only is the justice department looking into what's going on at barclays but there are american banks involved. >> there'd have to be. >> we'd talk about a citi, jpmorgan or bank of america. not many u.s. banks were involved in setting libor. what is your sense? >> look, you have tim geithner with the fortuitous memo,

romonstrating the bank to think of libor. it was a kissingerian development, he had the memos developed perfect but at the same time he was on the phone with bob reuben three or four times a day. we have to find out if bob knew anything about libor. he was running the show at the time. >> do you think we'll see something about jpmorgan or others and how significant is it? >> look, all of the major banks who do business with barclays could potentially have recrim nating information. so whats? 'a fixed rate, not a market rate. it's set as an indicator of where the banks may lend money to a prime customer. i don't see how you get excited about it. if they took the information and altered it, then you have problems. >> bringing it up to the macro, many people believe that we're really not going to get the economy going until something happens with housing to deal

with a lot of these mortgages that are underwater, and allow people more to refinance, if will you, and secondly, until we get more money flowing to small business, what are your thoughts on how can we make that happen. >> well, i think both of those things are correct. we still have a third to 40% of the housing market that's not financeable, because of the rules of fannie and freddie put in place, and just the general tenor of the market. the target ltb for a home mortgage today is 80 maybe or 70, so they went 30 cents of equity in the game and small business the same thing, a lot of banks that got into factory and got into look at household finance from hsbc, there's a whole lot of pockets that were not banking 10, 15 years ago that are literally going to have to be regrown by the non-bank sector because the banks won't do it. the probability of default on a small business is pretty high. what would the rating be for a small business, a c? that from a banker perspective with basel and everything else is a non-starter so you'll do

sba loans but that will be it. >> what if anything can and should the federal government do in order to try to help this situation? >> well i think the fed needs to let rates go up a little bit so we can rebuild the short term credit markets. they're coming back a little, repo but we have to make it worthwhile for investors to hold short term assets and maybe revisit dodd-frank in certain respects, the regulation of the real estate sector again is not going to help us. and we still have a lot of restructuring to go in the commercial real estate sector but the market is going to take care of that. we don't need help from uncle sal. he needs to get out of the way more than anything else. >> he needs to get his own act together frankly. >> uncle sam is ultimately going to affect the asset quality of the banks. if the federal government is out of control in a fiscal sense, they're forcing all the banks to buy sovereign paper instead of buying private asset that will generate jobs and this is what we have to reverse. >> thank you. >> did you see parr

pharmaceuticals is being acquired. it's a big mover today, prx is the symbol, closed at 36.58, acquired for 50 cash and they can solicit better deals, withcy weird. >> this is a go shop brought back which means they put a floor on it and means par pharmaceuticals can find a better buyer if they wish. his ohhally i should add go shops i don't want to say they're fake but very -- >> ha, ha. >> it is infrequent to where somebody else emerges later at a higher price. there's traditionally a breakup fee that makes it difficult and other issues if you make it complicated you don't know which way management may have already agreed to be with tpg. >> hopefully another buyer will come in so that this pe firm, tpg, this vampire does not outsource all of the jobs and basically bankrupt the company with the dividend recap.

>> good capitalists. >> yeah, right. anyway, hopefully someone else will come in that won't destroy the company and fire all the employees. >> we dent don't know if citi is one of the banks providing financing to tpg but it's likely. >> no, they didn't need any i think they said. >> did they say no financing? tpg would be buying without a loan. >> they'll lever it up eventually. there's an awful lot of money on the sidelines right now. >> it says that the transaction is not, i don't know, is not subject to a financing condition. >> advanced. >> you guys watch the non-bank sector over the next 18 to 24 months, you'll see ipos and a lot of financial buyer activity as we regrow commercial finance. >> hold on, then you think that the banking business would become strong as a result of that? >> no, they'll get out of these businesses, andrew. wells just walked away from wholesale, they were the last ones to do that, okay? >> what does that mean for the mortgage market overall? >> if you're an independent probinger or small bank it's more difficult for to you get a

loan done or to sell that production and get your dollar back and do it when it. we used to have an assembly line where a bank could make a loan, sell to an investor and do it again over and over. in in 2005 and 2006, they turned it around. today you do a couple billion dollars in production you're one of the biggest producers in the industry. we have 've reduced the capacit buy homes by a magnitude. >> that's the biggest problem, fannie and freddie will be the only players? >> they are. fha i sold my house to an 80/20 if, ha loan. it's difficult to get things done because we have the psychology in the market preventing many people from selling their homes. they can't believe prices have come off that much. >> this is an additional factor laying over the housing industry that will make it tougher for recovery? >> when people talk about recovery, they don't understand if you're in a nontraditional state like california where they

can mail you a notice that says get out, those markets have cleared. the southwest is cleared but in the northeast, where you have judicial states by and large and need a judge to bang the gavel for foreclosure, we have years of backlog so the northeast isn't going to recover that quickly in terms of real estate, but those states that don't require that are going to be moving much faster. i have friends in the real estate market in utah and arizona and they say considering are raining from the sky, about half of them investors so that's good for bad, depending on perspective but at least someone is buying those homes. >> chris thank you for coming in today. love having you here and talk to you again today. >> yes. >> we should point a few other headlines for this week, among the stories we're watching, fed chairman ben bernanke is heading to the hill once again this week where he will be presenting his semiannual monetary support to both houses of congress, happens tomorrow and on wednesday. markets are going to be listening closely for hints of future easing by the central bank as we spoke with alice rivlin earlier today, she does

not think the central bank should be doing more at this point, despite the fact she does think they need to focus closely on the dual mandate specifically what's happening with unemployment. also in corporate news this morning, we are expecting glaxosmithkline to acquire human genome. $14.2 billion takeover deal. human genome rejected a previous $13 a share offer. when we come back we'll focus on jobs, the economy and taxes, three keys to the presidential election. up next, strategy with lanhee chen, policy director for the romney campaign and next hour we'll talk to a banking analyst about the citigroup report. stick around. .. ...and listening to your instinct duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services.

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thejobs and jobs and the economy taking center stage as the election season heats up. joining us with more on romney's economic plan line, lanhee chen, policy director for the romney campaign. great to see you. i think you were scheduled to come on and we missed you that day. i think it was jobs friday, lanhee. it's great to have you on today. thank you. >> good morning. good to be with you.

thanks for having me. >> unlike what we're seeing, unfortunately, from i guess to some extent both sides of the campaign, let's keep this substantive and we had alice rivlin on, we had simpson-bowles on last week. i've seen the candidate, governor romney, when someone asked about simpson-bowles, he says "no, i like my own idea." how are they similar? how are they different? what would he do to address entitlement reform as well as tax reform? >> well, right, a couple of things. there are definitely some similarities between governor romney's plan and the plan that the simpson-bowles commission laid out. the simpson-bowles commission talked about lowering rates and broadening the base and governor romney put out a plan that would do exactly that. on the entitlement side governor romney talked about taking medicare toward a system that will strength continue for the future instituting a premium support system, while also providing seniors with a choice of taking traditional medicare if they'd like. governor romney's also talked

about reforming social security, and he's put out some specific proposals related to progressive indexing as well as raising the retirement age over time and finally on medicaid, he's talked about the importance of block granting medicaid to the states so governor romney has had a series of fairly specific proposals that line up closely to what simpson and bowles proposed a little over a year ago. >> lanhee, dave walker. i know that governor romney has a 58-point plan, but when is he going to be able to boil that down to something that actually will resonate with the american people? he spent time in harvard, i spent time at harvard, and i recall one of the things i remember most, people can generally remember three things and it's clear that this election ought to be decided on the economy, jobs and fiscal responsibility, so when is he going to boil it down? >> dave it's good to be with you. i think the governor has been out there talking about his plan in a pretty concise way. he's talked about the importance, for example, of restoring economic freedom, that

refers to getting our tax rates down, getting our regulatory system under control, and having labor policies that restore balance. he's talked about fiscal responsibility, as you say, that's both cutting spending, streamlining government, but also the long-term entitlement reform stuff and he's also talked about the importance of economic growth, through policies that promote trade, opening markets abroad on terms that work for america. so i think you're going to hear the governor out there talking a lot more about his plans in a succinct way, which really i think he's been doing since the start of this campaign. >> lanhee, there are two areas i would ask you to comment on where the governor stands. first, my understanding is he has signed the americans for tax reform pledge, and therefore, where does that put him with regard to the need for more revenues as part of a grand bargain, and then secondly, i know he's expressed reservations about cutting defense spending. those seem to be the two biggest impediments from what he said so far as a way to get a grand bargain. >> well, a couple of things.

governor romney has said he disagrees with the revenue targets in simpson-bowles, he thinks those are high and he would not look to be increasing tax revenue from tax reform. with respect to defense spending, what governor romney's always said is he believes in a strong national defense, that america has to be the strongest nation on the planet in order to deter bad actors from behaving in ways that could threaten peace in countries around the world, so a robust defense, a robust national security is important to the governor so he has talked about the importance of increasing our military capacity, reversing the obama era defense cuts and specifically doing away with the pending automatic cuts that we'll see beginning january, unless the congress is able to reverse that action. >> lanhee, just to put a fine point on it, governor romney, it's off the table to raise revenue at all in any capacity? >> i mean, the governor has said that he is not looking to

increase tax revenue through the reform. that's correct. >> i understand that's what he's looking to do but in the context of a grand bargain, would he be willing to do horse trading to compromise to get some of these other things that he's looking for? >> i think the governor's been very clear on this, that he will not raise revenue through a compromise. he's not looking to increase taxes, particularly in the midst of an economic slowdown. that's a mistake the president -- >> you can't use it to trade horses if you say you'll do it that way. >> there's no horse to trade. >> if you say yeah, i'll be willing to compromise then you don't have anything to -- >> but lanhee, is that a way of saying that he's not necessarily in favor of bowles-simpson because it's not revenue neutral. nobody's going to be able to pick this up and run with it? >> i think the important thing to note about bowles-simpson it shows how we can get to a tax reform, shows us how we can broaden the base and lower the rates. that doesn't mean he disagrees with the spirit or the principle

behind bowles-simpson. i think the important thing -- >> it's important to make sacrifice on each side and agree with something you completely disagree with. >> like the president won't say that he'll do it with 250 and above. he won't say we'll extend those until you get together and he gives that up and maybe romney gives up -- >> the difficult part about simpson-bowles you've got to give on a lesson that you don't want to, for both sides. >> the key question that has to be focused on, what is a tax increase. is a tax increase higher tax rates, is a tax increase more revenues than we're getting in now? >> it's not revenue neutral. >> hold on. i would respectfully suggest that there's a way to solve this problem in a way that could be characterized as a tax cut with comprehensive tax reform. let me clarify. under current law, we are headed to revenues being 23.3% of gdp and rising in 2035. we can solve our problem in a lot less than 23.3% of gdp. >> okay, i see what you're

saying. >> at the same point in time we can't solve it at 18.3. it's math. >> that's a good point, david, a tax cut from where we're headed if we don't change things. >> lanhee, today, i'm looking at these quotes, you know, the governor is still yelling at the president you got to apologize and the president's still saying i'm not going to apologize. i've heard that there are so many policy wonks around governor romney that people think that you guys can't take your gloves off. can you be tough? are you ready? can you step up to the plate or be like a nice guy policy wonk? what do you think? >>le with, you know, look, i think this campaign is going to be about big issues. >> let me see your fists, do they have gloves on? >> unfortunately -- >> oh, they're off already! >> they're there. they're there. unfortunately i think that the obama campaign has chose on it focus on small things, and they want to take this election

anything about the economy and the president's record on the economy. >> ooh, don't bring that up, please. >> it's a tough pill to swallow. 8.2% unemployment is a tough pill to swallow. >> come on back, lanhee. come back. workout, pump some iron and come back and we'll see you. >> looking forward to t thanks. coming up we'll get the government's latest retail sales data at 8:30 a.m. eastern time, after this. i don't spend money on gasoline.

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welcome back to "squawk box." we're seconds away from the retail sales data for june, rick santelli is standing by at the cme in chicago and steve liesman in the studios. >> retail sales down 0.5%, much worse than expected, and if you strip out autos, that's down 0.4%. if you take out auto and gas down 0.2%, so not good on the numbers. no revisions to last month which all stand, all those three stand at minus signs from minus 0.2 on. we also have empire index, manufacturing in new york. that improved a bit, 7.39, looking for 4 or 5 so retails week, empire state a little bit stronger. we do see yields moving lower on the spongy data, so at least there's a very logical response here. we're getting very close to

all-time low closing yields, established on june 1st at 1.45, basically one basis point away. pre-opening equities deteriorated from down 40 to down 46, but they already had that bias, of course we'll continue to monitor leading up to 9:30 eastern open. back to you. >> great. thanks, rick. for more on the data let's get to steve liesman of the mud crashers? the mouseketeers, the moon -- it's so condpuz ifusinconfusing. >> it's so interesting how you creatively blow the name of my band. >> the man crushers. >> it's the moon cussers. >> mooncussers, d. >> joe well knows it. >> the man crushers. >> did rick give the empire? i didn't hear that. >> 7.39. 7.39, july empire. >> positive, right? >> yes, positive.

>> that's a little bit better expectations. >> expectations right around 5 and up from the lame number we got last month, 2.39. priceis paid at the lowest levels since june of '09. new orders at the lowest since 20 2002 2011. the retail sales number are unremittingly weak. pick a category and it fell. the thing that pops off the page is the 1.8% decline in gasoline sales, that's expected. what will not have been expected by economists when they write their reports later today is the 0.6% decline in motor vehicle sales, everybody was counting on would be better than expected. we have seen in the past some mismatch between with what the government counts as retail sales and the automakers report. >> wrong then? >> not wrong but a timing things, ends up being next month accounted in the government numbers but that's the sort of, you know, top line stuff. getting into the numbers here,

sporting goods down 1.8. general merchandise down 0.2. department stores down 0.7. you know, give me a category, furniture down 0.8, which is interesting because we've seen some pickup in the housing market, not exactly what you'd expect. the only positive things here are miscellaneous store retailers and non-store retailers which i think pick up internet and cataloguers are two of the areas in there. some other subcategories in there as well, the only two positives but it does tell you that the consumer looks to have taken a break. one e of the things we've been picking up, we noticed this about two months ago, we see a decline in how much people were shelling out for gasoline and energies and fuels. the trouble is we didn't see the increase in spending and sales. >> interesting. >> that's usually what happens, it comes out of gasoline and goes into someplace else. where we expect this to see is personal savings. it looks like the consumer might

be taking this pause or this extra money they're getting from gasoline and putting it into paying down their debt or increasing their savings. >> which isn't necessarily a bad thing unless you're hoping the economy can continue to chug along. >> it depends on who you are, becky, a retailer hoping for the consumer to spend every last dollar and then some or are you fiscal policymakers say okay that's good, consumers are de-leveragi de-leveraging. everybody wants you to save but not right now. >> steve, i had seen something over the weekend, someone put out a report about how we have these home equity lines of credit that for a long time you can go something like three years and not pay back any of the principle, that you just have to pay the interest. >> right. >> but that more and more of these things are going to be hitting over the next three years where they are required to start spending more and paying down some of the principle as well. that could suck a lot of the money out of the consumer spending. >> i think some of them can also be culled, right? >> right. >> you pay back some of the home equity lines of credit. that's right, eventually that's right into dave walker's line of

strength is that you can pay the interest for a while but eventually there's a knock on the door and the guy's wearing a hood and holding a sign and he's the grim reaper and he comes and calls the debt. >> steve, there's some logic here. the fact is that people have a lot of job insecurity right now, they don't have a great deal of confidence in the future, and therefore, you've got to pay higher gas prices. you don't have a choice, it's non-discretionary. to the extent they have some discretion they're being more cautious about it. that's why i think we have to recognize, we actually need to do some things to try to get the economy going, to try to be able to help invest in critical infrastructure, to try to help deal with unemployment, so we ought to be making some more investments at the federal level that are properly designed effectively to be implemented but got to be coupled with putting our finances in order. you can't do one without the other. you need to do both. >> an economist named david ricardo in the 19th century wrote what's become the

ricardian equivalent. they count on the tax bill coming later. it's okay to spend now and if we lay on a way to work out way out of this and you can bring forward in a keynesian way some spending but you can't say we'll take care of that bill in the future because it leads to uncertainty. if you pick up the nabes survey, part of the whole economic atmosphere out today, what's happening in europe and what's happened in the fiscal cliff are beginning to affect business and affect business right now. if you can provide some certainty as to how that's going to help us out, or how we're going to work our way out of those problems, people might bring forward some of the investments they would make in the future. and again, i'm just looking at these numbers here, guys, and the only positive thing here, two things are positive. year over year retail sales are up 3.8%. the other thing is, you do have declining prices, and when they inflation adjust these numbers they may be slightly better. when you look at real disposable income it has been going up.

why? not because wages are rising but because the inflation take has been declining. we're doing 1.7 year over year, cpi headline 2.3 on the core number so that's going to be a help, and if there were two things out there that could help the economy, someone going to be lower fuel prices, though several economists say it's not enough on its own and housing and the question becomes, you put housing and lower fuel prices against the uncertainty of europe, and the fiscal cliff here, and i don't think the equation balances. >> we have a ways to go on housing, there's still a lot of uncertainty in housing. >> right. >> all right. thank you. you guys just stopped. thanks to rick and steve, david walker will be with us, our time is running short apparently, unfortunately. >> only 24 minutes. >> to get the solution. >> are you ready to do this, 23 minutes to figure it out. >> i'll give you the report, sign your name to it. >> run for senator, why don't you do that? >> the senate is dysfunctional. >> the senate is. they're all patricians.

they sit around feeling good about themselves, getting good tables at restaurants and they do nothing. they don't write any laws. >> they work three days a week. >> work? work? >> they come to washington three days a week, they haven't had a budge net three years. i'm 60 years old. i know that's hard to believe but i'm 60 years old. you know how many times congress has passed a budget and a the appropriations bills on time in 60 years? take a guess. the answer is four. four! >> four times? >> yes, no budget, no pay. all right? these people need to have some accountability. we don't have any accountability for failure to do their job. >> i like no budget no, pay. good bumper sticker. >> you're 60 years old and you bought a porsche. >> used, 5-year-old used porsche with 12,000 miles. >> we'll get you a bumper sticker that says no budget, no pay. would you put it on the porsche? >> i don't know. i might. >> you don't want a bumper sticker on a porsche. coming up citigroup reported

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citigroup reporting its earnings earlier this hour, they came in with numbers better than expected. joining us on the "squawk" u.s. in line is gerard cassidy, the lead banking analyst at rbc capital markets. gerard you looked through this report. what comes as the biggest are he leaf to you? >> i think the biggest relief, becky, is that the numbers came in better than expected without special items other than the two identified on the cvs, dva and then the sale of their investment in the bank. >> we talk with dick bouvier earlier, he said to look at what's happening in latin america because of their large exposure in mexico. >> the credit improved on the side in latin america, there was credit deterioration in the europe, and latin america end of the business but latin america was okay and the impact was not that material.

we did have a strong exchange in mortgage banking. theirs is $637 million which is very strong. >> that's good news when it comes to mortgage banking? we've been kicking around the idea of the banks and mortgages they're willing to extend. >> it is good news for earnings but it's tough to sustain those gains, as we all know rates have come down so much and made mortgage banking very profitable today for everybody includingcy group. >> chris whalen was here earlier and pointed out he likes citigroup particularly because they've done a good job as he sees it whittling down and slimming down the operations. where do you think citigroup stands in its makeover at this point? >> i think he's right, they're making good progress, steady progress, this is turning around a very large ship, of course, not a speedboat and it takes time. citi holdings had a further reduction, that's their pool of bad assets as you might recall and that declined again, the credit improvement in

citi holdings showed up as it did for the whole company. the company is making progress turning it self and getting rid of the problem assets from the financial crisis. >> the bank is up this morning, up 2.4% on this news, 27.30 is the last trade. would you be buying? >> i would be because book value is over 60 a share. this stock is very cheap. >> and this stock versus other financials that are out there, how does it compare? >> it's definitely more attractively priced, and if we can, you know, look further out, this company is well positioned to capture the global growth, but we know there's a challenge there over the near term with what's going on in europe, but once we get beyond that, citi in the u.s. is best positioned to capture the global growth and is selling in the big discount-to-book value today. >> how do you think about the financials overall, gerard, there is the huge margin compression, a lot of the banks will have a tough time until the federal reserve is ready to raise interest rates. you look at what's happening in the economy that's not likely to happen any time soon. >> becky, you put your quicker on it, that is the number one

issue for the banks. it's interesting considering what they're confronted with today, similar to last summer and the summer before the stocks are up 20% year-to-date today. the regional banks inside the s&p 500, so they're holding up very well, and you're right, the flattening of the yield curve is the major challenge for the banks, and i think you're going to see that pressure remain well into next year. >> do you look at that as part of your valuation, just the continuing economic outlook, not only what it means for the banks and the bottom lines, the ability to find loans for businesses and for consumers? is it more important from that perspective or is it more important from the position of the federal reserve? what's the bigger picture here? >> the bigger picture is net interest revenue growth and you touched on it with the loan issue. loan demand remains okay. we see it every week with the federal reserve, so loan growth is the real key component for the banks. so margin pressure will hit the net interest revenues of course but some banks are making it up with volume and loan demand is showing up as we're seeing both

on the consumer side and also on the corporate side. >> pandit said over the weekend he would like to raise the dividend, obviously only a penny at this point, he would like to raise it the later half of this year. there's been skepticism whether or not the bank could get approval from the federal reserve to do that. is the idea of a higher dividend, is that baked into your positioning on where you see the stock right now or does it matter? >> e oh it does matter, and yest is. investors should anticipate not this year, they reapplied their capital plan was not approved with the dividend increase earlier in the year. they've reapplied and in the reapplication process they did not ask for a dividend increase so we have to wait for next year. i expect for investors to own the stock dividend increases are a key component as are share repurchases which we see in the future as well. >> by when are you anticipating that increase dividend as part of your reason and your theory behind why you should buy the stock? >> if we assume the u.s. does

not go into a recession next year, i think when we they apply for the annual c-car analysis i expect approval in the spring of next year. >> gerard thank you very much for joining us today. >> you're welcome, thank you. coming up, the street view of citigroup again and the rest of the big banks, we're going to head down to the new york stock ex-changs and wednesday, the world's best known hedge fund managers and largest investors around are going to gather in new york for cnbc's delivering alpha conference. some people seek alpha. what good is that, if you can't deliver? we deliver it. "squawk box" will be there with keynote speaker tim geithner, the u.s. treasury secretary. between listening to the numbers... ...and listening to your instinct. duff & phelps finds the sweet spot

that powers sound decisions. duff & phelps financial advisory and investment banking services.

between listening to the numbers... ...and listening to your instinct duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services.

let's get let's get down to the new york stock exchange. jim cramer. we're solo? >> always ready. >> citigroup earnings? >> i liked them. what can i tell you?

they're going through a transaction model, not a model that has a lot of risk. i like that. they are dominant in a lot of emerging markets and much smaller in europe. it's kind of like a dream come true from where citi is going to be this time next year. they're going to own a lot of the day-to-day, turn the lights on business and make money. i like quarter. >> any news on libor? reports out there's going to be a criminal probe? and we were talking about the whiteout that you used on friday with jpmorgan. you've had a couple of days to think about it. >> i always marvel -- when you say criminal probe, you either do arthur andersen which shuts down every bank in the world -- other than wells fargo who's quick to say, we're not libor. but that means they have to isolate certain individuals. it's entirely possible. look at the tape and decide who the worst actors are. we have to indict someone.

someone has to go down because when we don't indict anyone, people get angry. this is the opposite of what preep aurora is going to be talking about when we go to alpha. i think it's prep premature to talk criminal. >> i used to be a partner with arthur andersen before they had their problems. as you recall, the federal government indicted the firm rather than the responsible individuals and the supreme court later came back and said they overreached. but by that point in time, it was to late, the market has taken over, the firm was gone. we need accountability. the government needs to be judicious and target the right individuals. >> if they go after barclays, is the justice department going to cause their own lehman brothers? no. there's pressure to go after

someone. but we cannot afford to take down the institution and the supreme court says you can't do it. let's not make too much of the criminal indictments. a couple of guys are going to be sacrific sacrificed, pushed out by their own firms. that's how it's going to come down. >> jim, look forward to seeing you in a few moments on "squawk on the street." when we come back, more from our guest host, general david walker. it is his last chance to come up with a fiscal solution before the end of the show. stick around. tomorrow, it's tomorrow, it's a big day for earnings. plus, quarterly reports from goldman sachs. don't miss "squawk box" for up-to-the-minute earnings news and analysis. before you take it on your road trip... we take it on ours. this summer put your family in an exceptionally engineered mercedes-benz now for an exceptional price during the summer event. but hurry,

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traded at below $10. what do they get to do if they get a better offer -- >> to-go shops. they have 30 days to find a better offer out there. traditionally they look. >> there's a financial buyer? >> there's a financial buyer. >> it wouldn't outsource all the jobs and just try to enrich its own partners and wouldn't destroy the company -- >> those listening on radio who think you're serious -- >> how can they tell i'm not -- >> well, your face. for those watching on tv. let's get final thoughts from our guest host, david walker. you started this conversation this morning talking about what really needs to happen to get us on the right fiscal path. unfortunately i think a lot of the things you laid out are not there, the idea that either of

those candidates would exclude this as fiscal authority -- >> i think it's too early to tell. they aren't doing it yet. we'll see what they say in their acceptance speeches at the conventions. i think it's critically important that for the interest of the country that we focus on economy, jobs and fiscal responsibility. i think the candidates need to have more truth, more solutions. if they do that, the people can make a judgment about who to vote for. and whoever wins will end up being able to claim they have a mandate because congress is dysfunctional this year. they're going to be dysfunctional next year. we need extraordinary presidential leadership. and the problem is not just at the federal level. state and local governments have serious problems, too. within the last three weeks, three cities in california have gone bankrupt. bad news flows downhill. the typical state relies upon the federal government for about 40% of its revenues. government is going to spend

less over time and tax more. the ratio is going to be more spending reduction than revenues. states need to get their act together, reform their pension programs, deal with their huge unfunded retiree health obligations and they need to do it soon because time is working against them. >> when do you -- what will it take for you to say, i'm out of here? will you get frustrated because nothing good ever happens? >> i'm going to devote my energies for probably another year to this on a full-time basis and then i'm going to go something else. >> what's the something else? >> i don't know yet. i haven't decided. >> you think we'll make any progress in the next year? >> i believe it is critically important that we have some grand bargain in 2013. i think it can happen. >> that means 50/50? >> better than 50/50 if two